You Cannot Compete: Why it is Important to have a No-Compete Clause

No-Compete ClauseSteve Stone
Owner, CEO

When going into business for yourself you must always keep the safety of your company and your employees in the front of your mind. It is your job to make sure that the business you have built cannot be ruined. However, what many businessmen and women fail to think about is the threat that can be posed from within their company.

These threats can come from a bad employees who are lazy workers, don’t have the best of the company in mind, who’s bad attitude is spreading through the ranks but also from great employees that decide they are ready for a change. What would you do if your employee decided it was time to start his or her own business or go to work at another, competing company? A great way to protect your company from the inside is by requiring each employee sign a no-compete clause, also known as a non-compete clause or a covenant agreement.

While a no-compete clause is, ultimately, designed to protect you as the owner and the company, it is made more specifically to protect your employees that have sought out a career with your company. A no-compete helps ensure that all your employees’ hard work continues to grow with your company. The potential for an employee to leave and take accounts is high in the service industry, especially when they decide to open their own business. Every time an employee leaves and takes business, it hurts the people that are committed to you, that trust in you and your ability to you’re your business; it hurts your company and their career. You also want to include the solicitation of your employees in your no-compete clause. When a technician working for you leaves to start his or her own company, they know who your best employees are, or they are buddies with some of the other techs and may try to solicit your employees. By including the solicitation of your employees in your no-compete agreement the possibility of that happening are lessened.

When I first started my service company I had 6 trucks. I was trying to get my client base built up and kept visiting a local kaolin mine. In Georgia kaolin is huge, it is used to make sheet rock, medicine, paper, paint, tooth paste a whole host of things. I knocked on doors, gave them my card and told them I did 24-hour service but could not get anywhere. About a year later I finally got that phone call. It was after hours and we went and repaired an 8-inch water main. From that point on they brought my company on for all their service needs. I sent one of my techs there and we stayed 3-4 days a week. We would have a minimum of 3-4 people there at any given time. It was a huge account.

Then, one day, the lead tech decided to go into business for himself. I did not have a no-compete in place back then so, I bet you can guess what he did. He went to one of the biggest accounts I had and he took it. I lost a multi-million dollar account because I did not have a no-compete. To put the icing on the cake, he came back about 8 months later and hired one of my employees. There was nothing I could do about it.

That was a wake up call. I had other employees that had been with me since the beginning that helped me grow the business. They were counting on me. I had let them down. They looked at me and said “Steve, what are we going to do? Are we going to run out of work?” Fortunately, we did not have to lose anybody. I tried to get the account back but, because they liked the technician so much, I was not able to. We did the only thing we could. We went out and found new business.

Each state has different laws on how they handle no-competes. Some vary on how long the no-compete will last; some restrict the territory it covers or the activity contained within while others do not allow them at all. Here in Georgia the maximum no-compete timeline is three years. This gives them enough time away from your company that any relationships built with your clients aren’t fresh on their mind or your clients mind. By the time they can solicit your client, that relationship has been forgotten and the one you’ve built is still going strong. It does not prevent your former employee from actually practicing their trade, it simply hinders them from seeking out your clients. I do recommend that you have it reviewed every two years. Every time a no-compete or a convent agreement case comes through the courts the laws can change.

What should be included in a no-compete clause? Here are the areas we recommend:

• Acknowledgements
• Trade Secrets and Confidential Information
• Work Product
• Release
• Post-Employment Disclosure
• Non-Solicitation of Customers and Suppliers
• Non-Solicitation of Employees
• Covenant Not to Compete
• Injunctive Relief
• Compliance with Company Rules and Applicable Laws
• Return of Company’s Property
• At-will Employment
• Attorney’s Fees
• Wavier
• Severability
• Governing Law
• No Strict Construction
• Entire Agreement
• Amendments
• Successors and Assigns
• Consent to Jurisdiction and Venue
• Notice
• Affirmation

Once you give these categories to your attorney they will know exactly and will probably have a generic no compete that you can customize to fit your business.

Every two years you want your attorney to look at it and look at the law again and tweak it. To insure there is no loopholes that an ex-employee can jump through. Have your employees resign the updated no-compete when updated. If you are in a big city you may want to look at it yearly because those cases do go to court more often in those metropolitan areas.

I learned a valuable lesson that hard way. I will never again hire anybody without a no-compete. Learn from my mistakes. I don’t care if you have 1 truck. Protect your business and your employees. Implement a no-compete.

One Comment

Add a Comment

Your email address will not be published. Required fields are marked *